03/06/2013 05:06 EST | Updated 05/06/2013 05:12 EDT

Beyond The Bubble: A Recipe for a Stronger Alberta

With all the gloom-and-doom swirling around Edmonton this week, an outside observer might conclude a state funeral was in the works instead of an annual budget presentation.

Yet while Premier Redford undeniably has tough decisions to make, there are promising signals that she is looking beyond bubbles and examining a range of more enduring solutions to the province's challenges. These might include economic diversification, saving more resource wealth, and--as crazy as it might sound--a more aggressive climate policy.

First there's the matter of resource dependency, a conundrum that David Emerson knows well. "Energy and natural resource markets are notoriously volatile," the former federal conservative cabinet minister and chair of the Premier's Council on Economic Strategy once wrote. "The more government spending relies on such revenues, the more fiscal volatility and instability becomes embedded in fiscal frameworks."

How might Alberta stabilize its fiscal frameworks? The long-term solution is not finding more markets for oil, but diversifying the entire economy to smooth out some of the bumps on the natural-resources roller coaster. That's a tall order, of course. But where there is a will, there is a way--and there is a way.

The truth is, Alberta can capture new revenue, start paying down the deficit, restore its credibility as a responsible environmental steward, and use market forces to drive the innovation needed to gradually reshape the economy.

It can do it, in part, by increasing the price paid for carbon pollution.

Hear me out, because a window of opportunity is opening. The province is currently reviewing its greenhouse gas regulations under the glare of an international spotlight on the oilsands--presenting a clear opportunity to demonstrate true commitment to addressing climate change by significantly strengthening them.

Increasing the price paid for pollution (currently at $15/tonne) and taking a more sophisticated approach to deploying the associated revenue will not only begin diversifying the economy but will go a long way towards restoring the oil sands sector's diminished environmental standing in markets south of the border and overseas.

A stronger price on carbon pollution will drive market forces to get rid of that pollution. We will begin to see more efficient buildings, more renewable energy, better transportation systems, and higher industrial productivity - that is, more value produced per unit of pollution emitted.

To its credit, even in the face of the deficit, Premier Redford's government has begun a public conversation about the need to sock more resource wealth into savings.

As Madeline Drohan, Canadian correspondent for The Economist and author of the report The 9 Habits of Highly Effective Resource Economies, has written, putting resources revenues into a fund and using only the income from the fund for current spending "takes the government off the roller-coaster fuelled by resource revenues that soar and plunge unpredictably."

This echoes similar recommendations from the Organization for Economic Cooperation and Development, the International Monetary Fund, and numerous other scholars and thought leaders.

A higher price on pollution will drive innovation and provide the province with sorely needed revenue. Couple it with complimentary efforts to diversify the economy and invest more resource wealth, and you have a dynamite combination. In all cases, revenue might be strategically invested to better prepare Alberta for the inevitable global transition to a low-carbon economy.

But of all these solutions, a serious carbon price just makes sense. It would not only deliver myriad environmental and economic benefits as outlined above. It would capture the attention and respect of the entire world.